Review Your Filing Status – The status of your filing can impact how much you owe each year and whether or not you have to file at all. It’s important to know if your filing status will or has changed during the year. For example, if there was a change in your marital status this year it could switch your filing from single to joint.
Select How Much Tax to Withhold - If you received a large refund on your tax return last year, it could mean your employer is withholding a large amount from your paychecks. If you chose to decrease the withholding, it could give you access to more of your money throughout the year. It’s all a matter of preference. It’s important to meet with your payroll manager to review your withholding allowances on your W-4 form.
Establish Your System – There are a number of ways to organize your tax records, but it’s important to have a filing system that works for you and has all the documents you need in one place. Avoid waiting until the last minute to organize your important documents, instead keep all tax information in a safe place. While most tax documents will arrive near the beginning of the year, others will appear throughout the year. Checkout NerdWallet’s Tax Prep Checklist for guidance.
Save Tax Deductible Information – Do you own your own business or plan to itemize your deductions? If so, you should hold onto your receipts and other documents for eligible expenses. You won’t need to submit your receipts with your tax return, but you may need to substantiate your expenses if the IRS audits your return. The same can be done for home improvements, especially if you plan to sell your home.
Track Your Charitable Contributions – Doing good for others really does payoff – you may receive a tax benefit. You can include charitable contributions to qualified organizations in your itemized deduction, but this may require extra documentation. It’s important to keep good records of all your charitable contributions to qualified organizations throughout the year.
Plan for Estimated Taxes – Underpaying taxes throughout the year can have negative consequences. If you expect to owe $1,000 or more in taxes when you file, the IRS generally requires you make estimated tax payments throughout the year. This is especially important for business owners or self-employed individuals who generally don’t pay income taxes on their earnings. It could be wise to work with a tax accountant to determine how much you should set aside and pay each quarter.
Avoid Tax Scams - Taxpayers should be on the lookout for tax-related scams. Scams related to Social Security numbers are on the rise. Scammers claim to be able to suspend or cancel your SSN. It’s an attempt by con artists to frighten you into returning ‘robocall’ voicemails. If you receive a call threatening to suspend your SSN for an unpaid tax bill, just hang up.
Pay Taxes Due by April 15 - If you expect to owe taxes when you file your tax return, it is a good idea to pay as much as possible before the due date, Thursday, April 15, 2021. Even if you are unable to pay the full amount you may owe, pay what you can as soon as possible.
A large number of taxpayers consider filing taxes a stressful experience, but it doesn’t have to be. By staying organized throughout the year, you can make the process much easier. The sooner you start, the more accurate your filing will be. It’s important to keep a copy of your tax return and related documents for at least three years in case the tax agencies have questions. For more information about filing your taxes, visit irs.gov.
If you have specific tax questions, be sure to consult a tax advisor, or an accountant.
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